If you want to start a business model and have several ideas in mind, it’s often hard to narrow down on a particular market you want to sell to. You might have several different competing ideas and aren’t sure which one to focus on. You might not be sure which part of a market you want to tackle. You might suffer from a case of analysis paralysis and not make a decision about what kind of business you want to start, because you’re afraid of making the wrong decision. Fortunately, there are a few key questions that you can ask yourself that will help identify which of your business ideas you should pursue:
Is there an existing market for my product/service? If you’re trying to build a new product or service that doesn’t exist anywhere right now, you’re going to face a very uphill battle because your customers don’t know that they need your product or service. If you’re entering into an existing market that already has a lot of customers, you just need create a product or service similar to what your competitors are selling and provide more value than they are or come up with a unique selling proposition (USP). If there are a lot of competitors in a market that means there are already a lot of companies making money in that market. Do not view having competitors in a market as a bad thing. That simply means the business model has already been proven.
Do the skills my business requires line up with my strengths? Make a list of the business skills that you’re particularly good at and make a list of skills that your business will require to run successfully. There should be a strong correlation between those two lists. For example, my WordPress optimization service requires an extensive knowledge of WordPress management, website performance and sales of digital products. I’m fairly good at all of those things, so it was a natural fit to setup that business. By starting a business that leverages your strengths, you’ll avoid many of the mistakes you might make in businesses that you don’t know as much about and don’t have the particular skillset needed to run that business.
Do I have a cost-effective way to reach my market? If you build it, there’s no guarantee that anyone’s going to come. You need a reliable, repeatable way to reach your potential market of customers. Don’t build your product or service and assume that you’ll figure out how to market and sell it at a later date. Marketing is just as important, if not more important, than the actual development of your product or service. You need a way to easily identify and contact your potential customers affordably. This might be through direct mail, email marketing, targeted advertisements in trade magazines or pay-per-click advertising. Don’t fool yourself by saying you’re going to use search engine optimization (SEO) and social media to promote your product. Search engine optimization is not a long-term sustainable traffic strategy in most cases and it’s very difficult to sell through social media. Find a way to directly identify and communicate with your target market.
Can I offer a product or service my target market wants? If you’ve identified a target market of customers that are already buying something, you need to determine whether or not you can realistically deliver on the product/service that they’re already buying. If you can duplicate what your competitors are selling, then you simply need to find a way to offer more value than your competitors do or market your product/service better than your they do. Even if your product is identical to your competitors’ product, you can capture a chunk of the market by marketing your product/service better than they can.
Does my business wholly rely on someone else’s ecosystem? If your business is totally dependent upon Facebook, Google, Apple, Microsoft, eBay, Twitter or another NASDAQ listed company to succeed, you’re asking for trouble. Your business will only be successful as long as the company you’re working through doesn’t change the rules of the game. Consider how many eBay sellers were driven out of eBay’s marketplace in the last several years because of changes to eBay’s policies and fee structures. Think about how many companies were building the next great Twitter client, but were driven out of business when Twitter changed the rules of its APIs. Its okay to leverage social media platforms, app stores and search engines, but the majority of your business shouldn’t rely on your company being in the good graces of any big technology company.
Can this business support the income that I want to make? Some businesses have natural ceilings that are hard to get past. If you’re looking to make $1 million per year, opening a small restaurant franchise like a smoothie shop or a Subway probably isn’t the answer. With businesses like those, you end up making $50,000-$100,000 per year and end up working full time to get it. You need to make sure that your business can support the type of income that you’re hoping to create. In order to figure this out, simply consider how many customers you can reasonably service and what each is customer worth to you per year.
What happens if I’m successful? When setting up your business, you need to come up with a plan for success. What happens if demand for your business’s product or service is much greater than you thought it would be? Would you be able to meet that demand? If your business is solely reliant on a particular skill that you use to offer a service or build a product, your business is going to hit a ceiling in revenue growth when you run out of time. When you’re first starting up your business, you need to start thinking about how you’re going to grow your business beyond yourself, what roles you might need to hire for, what equipment you might need, and generally, what your business looks like when it’s much larger than it is now.
If you evaluate your list of business ideas against the six questions above, you’ll quickly end up with a much shorter list of ideas to choose from and hopefully be able to narrow down on a single idea.
Also: I recently recorded a podcast episode on this topic with Peder Aadahl of the 168 Opportunities Podcast, titled Episode 062: Taking Your Gifts And Turning Them Into A Business With Matt Paulson.